Technology Spurs On Our Ability To Deceive

Caught between the forces of mainstream media and government propaganda it seems we can believe nothing we see or hear. Much of this problem is rooted in the agendas of large companies and those who control them. These companies have become so big and powerful that they now influence government's message and direction. Fake news and false flags have left many of us having a difficult time deciding what is real, adding to this is the rapidly growing ability of computers to generate and alter human images. This is all about to go to a whole new level.

Margrethe Vestager, the European Union Antitrust Chief, is busy touting that the EU's influence gives it the opportunity and power to shape the world. She insists the EU is ready to take on companies like Google, Facebook, and Amazon which she contends has used their power to undermine competition, keep out innovation and collect data on us. This has given these companies great power to manipulate society. Google did this when it used the power of its search engine to favor its own comparison shopping service. While the EU  has signaled it is going to make several big companies use their power in a way that’s fair and doesn’t discriminate the fact is this is easier to say than do.

The EU plans to do this by flexing its muscle with a combination of competition policy and regulation changes, however, whether it will be successful remains to be seen. Like many people, I remain dubious. These powerful companies already are overly involved with shaping the message of media and government propaganda are about to unleash upon society a great deal more computer-generated models and images. These have advanced to where they blur reality and diminish the need for humans to act as spokespeople or to represent organizations.

Back in 2011, Swedish fashion chain H&M admitted to using computer-generated models to showcase collections on its website. Since that time the ability to create computer-generated images has only gotten better. We have advanced to where it is difficult, no, it would be more accurate to say impossible to know if what you are seeing is really a person or simply the image of one. Drilling down into this issue forces us to where creativity, marketing, and price-point intersect and that has huge implications for society going forward. We have reached the point where what we are asked to believe in a world of fake news and false flags is only limited by our imagination.

Real Or Not? Click here to take the test

An example of this and somewhat harmless can be seen in the virtual models H&M has generated for use in ads. These images look completely human, but upon inspection, if you look closely, they might all have the same body shape and pose with a real model's head superimposed on the body where the skin tone has been digitally altered to match her complexion. This step which moves past "photoshopping" has created a bit of controversy. H&M has drawn criticism for creating a false reality and creating an unrealistic body image for women to live up to. The Swedish website Aftonbladet first noticed the uncanny similarities of the models. Hacan Andersson, a spokesman from H&M, confirmed the deception by saying:

"It's not a real body, it is completely virtual and made by the computer. We take pictures of the clothes on a doll that stands in the shop, and then create the human appearance with a program on a computer."

Andersson argued the company made the choice to use the images of computer-generated models because it simplified the process of the photoshoot and also that it allowed customers to focus on the clothes rather than the models. He acknowledged, "The result is strange to look at, but the message is clear: buy our clothes, not our models."

The Fact Is Computer-Generated Images Often Appear More Real Than Reality

Computer-generated imagery, known as CGI, encompasses the tricks and the ability to generate and manipulate images. This creates some interesting possibilities going forward as well as greasing an already slippery slope with endless possibilities. Eventually, this could lead to a form of "Photoshop" on steroids. Anyone familiar with Photoshop knows it delivers the magic that helps people bring their creative vision to life. By editing raw image files and photos using state-of-the-art photo editing not only can people create compelling high-dynamic-range images (HDRI) they can also mislead viewers as to what is real.

Expect a lot more of this in the future. By adding distinct characteristics from individuals that society views in a very positive light to a CGI it is not difficult to imagine that we might extend some of that same positive feeling to that image. If this is true then it is not difficult to envision both politicians and others "scrubbing" their voice and persona ever so slightly as to improve the impact they have on advancing their cause. Slowing their speech, deepening the tone of their voice, shaving off a few unwanted pounds. Manipulating people in this way could be looked at as a form of propaganda but in reality, it is only one step farther than we already go when we do extreme editing of a news clip to sway public opinion.

The future of TV news could be very different in that it could be completely computer-generated. Take, for instance, the many imitation sounds engineered into some electronic keyboards today. While an audiophile may be able to tell the difference the average listener cannot and most people don't care if it results in a less expensive download for their iPod. Since the same thing can be said about music and even art this can be scary, especially if you are the person suddenly discovering that a robot could take your job. In Vegas, stage shows used to all have live orchestras but now many musicians have a difficult time finding work on the strip. We have also seen the electronic equivalent of human-generated music gain a foothold as a genre and become a market all its own. Voice actors are already feeling the heat as the encroachment of synthetic voices hit the industrial/corporate market and push into audiobooks.

The ability to produce a human-sounding voice with all the inflections, nuances, and timing that makes it interesting often requires as much technical artistry from a software engineer as it does from an experienced voice actor, however, at some point computers will be able to take over and perform this task as routine. This should not come as a surprise to anyone who has been watching recent trends in technology. A quick search for the words "voiceover" and "computer voice" will bring you rapidly up to speed. Apple has even designed into its iPhone a feature called voiceover which the visually impaired find very valuable, it reads the words on the screen out loud in what Apple calls a "spoken English interface."

Much of this is happening beneath the surface with little fanfare because most people consider it harmless. The fact is we now have computers that sound more human than humans and on a positive note speak more clearly. It is not difficult imagining such figures saving media networks money by delivering the news. All this takes us to a time in the future when computers have the ability to generate images that deliver dialog and can act with emotion. By mimicking figures of the past or their best qualities and traits it would be possible to create false figures with compelling personalities.

In life most people never meet or hear their Senator or President speak in person, this means a "gentle concealed" enhancement could go a long way to make them appear more appealing. It is important to consider that if this technology can be used to enhance the stature of a person it could also be used to diminish their standing or even as a tool for character assassination. This makes this sometimes deceptive and potentially dangerous area of technology ripe for abuse. Sadly, it appears in the future it will become even more difficult to determine what is real and what is false.



Footnote; If you did not hit the "Click here to take the test" line under the image of 25 Years Of Photoshop it is a highly recommended exercise.

Speculation, The Giant Time Waster That Sucks Us In

Someone recently mentioned they wished they could have back the week of their life they spent glued to the television during the Kavanaugh hearings. While the Senate Judiciary Committee hearings on sexual assault allegations against Supreme Court nominee Brett Kavanaugh riveted Washington and the nation with hours of fiery, emotional testimony, in the end, it may not have been the best use of time for those watching. Speculation has the potential to be a massive time-waster, but both men and women tend to get sucked into this pastime that can while away the hours.

Speculation Was Not Kind To Mark Twain

This is not to say thinking through problems or looking at the various options being presented has no merit, but more often than not humans waste a lot of time pondering things that will never happen or never did. We even ponder why someone took a certain action or why something took an unpredictable turn. The habit of carrying speculation to an extreme is a curse.  

Speculation is defined by Oxford University Press as the forming of a theory or conjecture without firm evidence: such as "there has been widespread speculation that he plans to quit" or as the act of investing in stocks, property, or other ventures in the hope of gain. This article is focused on the first definition of speculation. It is true that in terms of investment or other such pursuits speculation can extend into a form of placing a bet by buying or selling a commodity or stock. It can also be the driver for someone to scream a prediction from the rooftop as a way to prove their superior judgment or intellect.  As I have written in a prior post I consider predicting the future as an impossible task, a fool's errand, full of pitfalls.

Events never seem to unfold as we might expect or predict. When you see how the world has developed, the twist and turns are most unpredictable and full of what the author, Nassim Taleb calls "Black Swans." This term is used to describe events that seem to  descend out of nowhere catching everyone by surprise. A great example of speculation gone wild can often be found on the Sunday morning talk shows emanating from our nation's capital. These shows originally designed to inform and report the crucial news of important issues facing our nation tend to quickly leave the facts and stray into the area of speculation. The line between opinion and speculation is fine and can easily be crossed. Blurring this, even more, is the habit many people have of stating an opinion as a fact, this does not make it one.

Speculationville is where the confident and suave television and news commentators, politicians, and the experts that speak with false authority live, I include the pundits and so-called specialists. Whenever I find myself drawn down the path that leads towards Speculationville I try to stop and ask if the journey ahead has any real merit or payoff. Often the subject we speculate over is a big factor into just how frivolous the effort is. This means I find very annoying the efforts of media, news programs, and talk shows to drag us into huge areas of speculation instead of focusing on facts and important issues. When they start talking about who will run for President in 2024 or be elected in 2020 we know where they are taking us.

It is often not the message they crank out, but the spin and way they project it with their heads all a bobbing and their arms moving all around that freeze us in our tracks. These people often rise through the ranks by stating their case with such brilliance and force that we are carried away by their enthusiastic message. As the words spew from their mouths and we read the reams of material they write it is easy to overlook the large number of often misstated facts and forget they are speculating or merely guessing. Sometimes they even go as far as to tell us exactly what someone was thinking, for example, a commentator might say, "when Martin jumped he knew it was to his death." I ask, how do they know that? It is possible that Martin was an optimist thinking he might survive the fall or he might not have even jumped but simply slipped.

The fact is that when it comes down to what someone is or was thinking unless these authorities have had a deep honest one on one conversation with that person they are only speculating. After they have used every recent "buzz phrase" they say, "that being said" and after "having said that" they often wow me with "just do the math" or "it is not if, it is when".  A major pet peeve of mine is the mixing up of "millions and billions" of dollars when talking about money or cost. But what sends me over the top is a line of pure speculation often used by politicians and our so-called public servants to justify some unsavory action, "it would have been far worse if we had done nothing". How do they know that? On more than one occasion when it comes to our government I find myself wishing they had done nothing.

We have all witnessed the crazy unenlightening information generated  from media coverage during "live crisis" coverage of a news event, it is a reminder that often the world is clueless. It seems that people love to defer to the opinions and advice of so-called experts so they don't have to think. When we look behind the curtain, we often find their background in the subject is weak and short, or clouded and blurred by bias. One thing I do know that is not based on speculation or hearsay is that a certain point speculating about the future tends to get excessive and becomes a great waster of time. Most of us might better spend our time focusing on real problems in the real world rather than whether Michelle Obama will run for President in 2024.

Crashing The Financial System For Fun And Profit

Huge Fortunes Can Be Made In Falling Markets

It would be wise to remember we are in uncharted waters and this market could reverse on a dime. The stories flowing out of companies such as WeWork that are burning through cash screams danger ahead! This means we should not discount the idea that those in charge might reach a tipping point where they crash the financial system for fun and profit. While this may seem outlandish the possibility is real. This doesn't mean that every rich guy and gal would sign on to this plan, just enough to push things over the edge. When things have gone too far in one direction history shows that a correction always takes place. It could be argued we have reached that point and true price discovery has been lost.

A huge amount of money can be made during a market crash for those properly positioned. As long as the Fed and the big banks survive those who control these institutions couldn't care less about how the 99.5% at the bottom fair. In fact, the Dodd-Frank Act which is over 2,300 pages allows this under Title II what is viewed by many as a "bank bail-in". This is done by imposing the losses of insolvent financial companies on their common and preferred stockholders, debt holders, and other unsecured creditors including depositors.

The whole event of a "bank bail-in" can be viewed as another way to disguise a massive default and it can happen here in America. An example of just how delusional we have become as to the fragility of our financial system is that many people have taken comfort in the efforts to control the banking sector through the Dodd-Frank act following the 2008 crisis. This legislation is over 2,300 pages and still growing. Under Title II it allows the government to impose the losses of insolvent financial companies on their common and preferred stockholders, debt holders, and other unsecured creditors including depositors.

Crashing the financial system would result in wiping out the pension funds, the hedge funds, the mutual funds, and more. Of course, if such a scenario were to unfold there would be no smoking gun it would be something that "just happened." Sure there would be a great deal of finger-pointing and experts would opine as to what went wrong and how to fix the system but things would go on. Rest assured that with so much blood in the streets little effort would be made to determine who instigated the trauma. Most likely as in the 2008 crisis, nobody would be held accountable or go to jail.

While this may seem unfathomable to many people it could happen. It also would be extremely profitable to those on the right side of a collapse. If you find this hard to stomach then imagine just how fast this could occur. Most investors think that even if things go downhill fast that they will be smart enough to get out of the markets. But what if it hits like the flash crash on steroids? Imagine a scenario where the market falls like a flash crash on steroids and investors are trapped.

Investors have been assured that can't happen because circuit breakers have been put in place to arrest panic style moves but, if trade is halted, and the market simply does not reopen for days or even weeks suddenly it is a new game. As remote as this might seem, if it were to happen it would have far-reaching ramifications. While you are imagining this scenario realize that America's stock market is the gold standard and consider how less stable global markets would react in countries like China and Brazil.

As for a catalysis, many exist and not all as sinister as what is being predicted by award-winning journalist Dr. Paul Craig Roberts.  The former Assistant Treasury Secretary in the Reagan Administration, who has a PhD in Economics, predicts the oligarchs of the New World Order (NWO) will do anything to boot President Trump out of office. This includes taking down and crashing the financial system as a last resort if all else fails. "They will wipe us out in order to get rid of Trump.”Dr. Roberts says forget about the Left/Right Democrat and Republican paradigm. Dr. Roberts explains, “This isn’t a Democrat vs. Republican thing..."

Adding to questions about where we are heading is just how little most people know about the economy. Years ago, Fed watchers were surprised when Ben Bernanke's former special advisor, Andrew Levin, said that "a lot of people would be stunned to know” the extent to which the Federal Reserve is privately owned, stating next that the Fed "should be a fully public institution." A recent post from the BOE's Banker Underground blog looked at the question of who really owns central banks. It found that around the world, central banks have a number of different ownership structures this means who they must be accountable to varies a great deal.

Central banks, like the Bank of England, are wholly owned by the public sector. Shareholders of central banks, like the Banca d’Italia are wholly private sector entities. Other central banks, like that of Japan, are a mix of the two. The problem is that more than half of the banks the world's central banks oversee are at risk of collapse in the next global downturn if they don't start preparing for tough times ahead. McKinsey & Company warned in a 55-page report titled The last pit stop? Time for bold late-cycle moves, that 35% of banks globally will have to merge or sell to larger firms if they want to survive the next crisis. This adds to the notion the masses will be thrown under the bus when push comes to shove.

Returning to the crux of this article, there is a great deal of money to be made during a market collapse. Those with money can swoop in and pick up bargains when the market is not liquid and fear runs wild. This market is ripe for such a scenario and there is a great deal of money waiting in the wings for such an event. With nothing notable to invest in as of late, it is reported that Berkshire has surpassed Apple and Google as the world's biggest corporate cash holder. In Q3 Berkshire reported a record cash pile of $128 billion. 

Many economy watchers concede the decade long "great manipulation" we have witnessed will not work indefinitely, and eventually markets will come crashing down around those in charge. With this in mind, it is easy to understand the allure of being one of those that will reap a fortune when it unravels. Years ago President Eisenhower warned the American people about the Industrial Military Complex but nobody warned us an even more evil alliance that of the "Financial-Political Complex." It would be wise to remember those at the top control the game and make the rules. In doing so, generous they are not.

China's "State Driven" Business Model Tailored To Exploit

As trade talks continue, it could be said that people are naive if they do not recognize the distinct advantage state-driven economy initially has over free enterprise. Its record of success over the long run is debatable in that political corruption coupled with it being unresponsive to consumer demand tends to derail it over time. We should not forget is that in China, the state is involved in everything. This means much of its economy is driven by politics. The notion of expanding GDP by building bridges to nowhere is solidly entrenched in the Chinese economy.

Well entrenched within the Chinese system is a strong vein of "communist crony capitalism" that has its own special set of characteristics. This results in a system that tends to be predatory and geared to quickly exploit the weaknesses of its competitors. Such systems also fail to react accordingly to market change thus squandering their resources. This feeds into China's One Road One Belt (OBOR) initiative and could seriously jeopardize its potential. The crux of this article is to underline the importance of recognizing China is a state-run economy. It is based on a business model that is geared to expand by crushing the competition. The state subsidizes those companies working within its system in a multitude of ways that helps it achieve this goal.

For years China has been a place were corruption has flourished, partly fueled because any appearance of growth has been rewarded. Also, the rules protect the politically connected.  Donald Trump recognized this and rallied those Americans that have been harmed and most affected by globalization and the "China effect" to put him in office. Trump's so-called base is made up of supporters many of which have lost their jobs or seen wages stagnate over the years. This sometimes referred to as the hollowing out of America is something that has occurred across a broad swath of the country as greedy companies have exploited the concept of "free trade" by having the products they sell in America manufactured in China using cheap Chinese labor.

Now Airborne The C919 Will Be A Major Player

Several articles that appeared on this site over the years support my argument that China is not our friend and that we had better be on our toes. One explored how China was ramping up its fledgling aviation industry and how when it hits its stride we can expect cutthroat competition. The article warns that as China's aviation industry takes flight over the next decade it could pose a major threat to Boeing's dominance. America may be saying say goodbye to a big chunk of its exports in this field. The Chinese manufacturer claims the twin-engine, narrow-body design of the C919 is superior to its competition the Boeing 737, the best-selling jetliner in the world, and its competitor, the Airbus A320. COMAC (Commercial Aircraft Corp. of China) also says it can bring the C919 in at a price lower than the $50 million range that Boeing and Airbus charge for each of their planes.

On Chinese President Xi Jinping's first state visit to the USA, he made a couple of deals said to help foster relations between the two countries. One was to order 300 Boeing aircraft for $38 billion, this was tied to Boeing building the first "aircraft completion plant" in China, it was to be Boeing's first non-U.S. plant. Considering China's knack, or shall we say, history, of taking advantage of sucking production ideas from manufacturers this move was a watershed event to many industry watchers. As noted above China is now in a far better position to realize its dreams to develop this industry because part suppliers such as GE, Pratt & Whitney, and other firms are eager to supply the engines and other key components. The politics of globalization a few years ago have paved the way forward and makes China's effort to produce planes far more likely to succeed. With China's experience of building cities from scratch, why build just one factory when you can build twenty? This means we should not expect this industry to grow organically but to expect its growth to be engineered by an aggressive government with a mission.  

Chinese-Bullet-Trains On Display

Another article deals with the company formed in a recent merger of China’s two largest train makers. This means the production of railway locomotives, bullet trains, passenger trains, and metro vehicles. It points out that no effort is being made to deny that the impetus for the merger of China CNR Corp and CSR Corp in 2015 was the quest for a deeper push into overseas markets. Proof of its ability to compete is that it has been able to win by a wide margin nine-figure contracts, such as the supply of metro cars to Boston and LA. It should also be noted that CRRC recently formed a consortium with Bombardier that allows it to compete for the renewal of the New York subways where it appears they are currently in the lead to win the contract that should amount to around $1.5 billion dollars.

The third article warns that when you closely examine America's trade deficit with Mexico it becomes even more disturbing.  When following the money the United States huge trade deficits you begin to understand the money eventually ends up in China.  When you start thinking about all the money and jobs we shift into Mexico each year you would think by now Mexico would be rolling in cash, however, a bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route and each year the numbers are huge. The United States ran a shocking $419 billion goods deficit with China in 2018. This is before considering how much American money flows into China through our other trading partners.

It does not take a great deal of foresight to realize that America is on the verge of giving up its role as an economic leader if it continues on its current path. Those who surrender to the idea America is too small to remain a world leader based on its smaller population numbers do not understand that quality beats quantity hands down. Whether driven by greed or suffering from being short-sighted, buyers of the many products we import each year should resist giving up their futures so that we can buy the latest fancy flat-screen television or set of patio furniture made in China for far less than one made in America.

Countries that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey. Sadly, history has shown that trade agreements with low wage nations are not the great job creators we have been told. The "so-called" free trade movement is often driven by greed and the desire of mega-companies to expand their markets. This makes it very important that we generate a solid effort to understand our adversary in this economic struggle. Baked into the Chinese system is a lack of respect for intellectual property and the notion they have the right to steal and copy the products of foreign companies at a lower cost. This makes it crucial we recognize the truth behind what drives the Chinese business model and find ways to level the playing field.

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Footnote; This link is to an interesting YouTube video that delves into the Chinese form of crony capitalism and its characteristics. It features Chang-Tai Hsieh, Professor Of Economics, Chicago Booth School of Business. https://www.youtube.com/watch?v=u8UEzVfspLs

Warning! Interest Rates, Inflation, And Debt Do Matter

With our national debt blowing past 23 trillion dollars nothing is as sobering as looking at future budgets. We should be worried. Central banks across the world claim the lack of inflation is the key force driving their QE policy and permitting it to continue, however, the moment inflation begins to take root much of their flexibility will be lost. This translates into governments being forced to pay higher interest rates on their debt. For years the argument that "This Time Is Different" has flourished but history shows that periods of rapid credit expansion always end the same way and that is in default. This also underlines the reality that any claims Washington makes about the budget deficit being under control is a total lie.

Click (Here) To View National Debt Clock

America is not alone in spending far more than it takes in and running a deficit. This does not make it right or mean that it is sustainable. Much of our so-called economic growth is the result of government spending feeding into the GDP. This has created a false economic script and like a Ponzi scheme, it has a deep relationship to fraud.

Global debt has surged since 2008, to levels that should frighten any sane investor because debt has always had consequences. Much of the massive debt load hanging above our heads in 2008 has not gone away it has merely been transferred to the public sector where those in charge of such things feel it is more benign. A series of off-book and backdoor transactions by those in charge has transferred the burden of loss from the banks onto the shoulders of the people, however, shifting the liability from one sector to another does not alleviate the problem.

When the 2018 financial year budget was first  unveiled it was projected to be $440 billion. An under-reported and unnoticed later report painted a far bleaker picture. The report titled the “Mid-Session Review” forecast the deficit much higher than originally predicted. The newer report predicted the deficit would come in at $890 billion which is more than double what they predicted in March of 2017.

Such a miss would bring up the question of whether the discrepancy in the 2018 budget is an outlier or a sign of incompetence. This is especially troubling because what was projected as a total budget deficit of $526 billion for 2019 Fiscal Year has now been revised to a staggering $1.085 trillion. Not only should the sheer size of these numbers trouble us but we should remember that until recently some Washington optimists were forecasting that deficits would begin to decline in 2020 and that we would even have a small surplus of 16 billion in 2026. The updated revisions have washed away this glimmer of hope and replaced it with more trillion-dollar deficits going forward.

Interestingly, the summery that begins on page one of the Mid-Session Review comes across as a promotional piece using terms like MAGAnomicics that praise and tout the Trump administration for its vision and great work. This is a time when it would be wise to remember numbers don't lie but the people using them do. This report is an example of how they re-frame a colossal train wreck into something more palatable. The report even goes so far as to assure us that the deficit will fall to 1.4 percent of the GDP in 2028, from its current 4.4 percent. As a result of the American economy having survived with little effect what was years ago described as a financial cliff we have become emboldened and now enjoy a false sense of security. Today instead of dire warning we hear news from Washington and the media how the stock market continues to push into new territory and all is well.

National Debt Now At 23 Not 12 Trillion dollars

The chart to the right predicted that by 2019 the national debt would top 12 trillion dollars, not the current 23 trillion. Projections made by the government or any group predicting budgets based on events that may or may not happen at some future date are simply predictions and not fact. This means that such numbers are totally unreliable. The ugly truth many people ignore is that starting last year entitlements became the driving force that will carry the deficit higher and higher into nosebleed territory. Even though we have seen deficits reach unprecedented levels the deficits in our future will be dramatically worse.

It is very disturbing that so many people have forgotten or never taken the time to learn recent financial history. By recent, I'm referring to the last fifty to one hundred years. The path that Fed Chairman Paul Volcker set right decades ago has again become unsustainable and many people will be shocked when this reality hits. Do not underestimate the value of insight gained from decades of economic perspective. It tells us the economy of today is far different from the way things have always been.

Back in September of 2012, I wrote an article reflecting on how the economy of today had been greatly shaped by the actions that took place starting around 1979. Interest rates, inflation, and debt do matter and are more significant than most people realize. Rewarding savers and placing a value on the allocation of financial assets is important. It should be noted that many Americans living today were not even born or too young to appreciate the historical importance and ramifications of the events that took place back then. The impact of higher interest rates had a massive positive impact on corralling the growth of both credit and debt acting as a crucial reset to the economy for decades to come. Below is a copy of that article. 

                       A Time For Action, 1980?

In his book "A Time For Action" written in 1980 William Simon, a former Secretary of the Treasury tells how he was "frightened and angry".  In short, he sounded the trumpet about how he saw the country was heading down the wrong path. William Simon (1927 – 2000) was a businessman and a philanthropist. He became the Secretary of the Treasury on May 8, 1974, during the Nixon administration and was reappointed by President Ford and served until 1977.

I recently picked up a copy of the book that I had read decades ago and while re-reading it I reflected on and tried to evaluate the events that brought us to today. As often the future is unpredictable, looking back, it is hard to imagine how we have made it this long without finding long-term solutions and addressing the concerns that Simon wrote about so many years ago. Back then it was about billions of dollars of debt, today it is about trillions of dollars. It appears that something has gone very wrong.

Do Not Underestimate The Importance Of The Reset By Paul Volcker In 1980

By the end of the 70s inflation started to soar. Only by taking interest rates to nosebleed levels was then Fed Chairman Paul Volcker able to bring inflation back under control. Paul Volcker, a Democrat was appointed as Federal Reserve chairman by President Carter and reappointed by President Reagan. Volcker is widely credited with ending the stagflation crisis where inflation peaked at 13.5% in 1981. He did this by raising the fed fund rate which averaged 11.2% in 1979 to 20% in June of 1981.  This caused the prime rate to hit 21.5% and slammed the economy into a brick wall. This also affected and shaped the level of interest rates for decades

Rates Today Are Ready To Fall Off The Chart!

This action and the increased interest rates in following years is credited by many to have caused  Congress and the President to eventually balance the budget and bring back some sense of fiscal integrity and price stability to America.  As the debt from the Vietnam war and soaring oil prices became institutionalized we moved on. Interest rates slowly dropped and the budget came under control. In recent years spending has again started to grow and at the same time taxes have been cut. This has slowly occurred over years and been ingrained in the system.

With our debt at 23 trillion and growing the path has again become unsustainable and many people will be shocked when the reality hits. As our debt climbs some Americans feel just as frightened and angry as Simon did so many years ago. America has kicked the can down the road, failing time and time again to face the tough decisions. Part of the problem is the amount of debt has grown so large that we can no longer imagine or put a face on it. The day of reckoning may soon be upon us, how it arrives is the question. Many of us see it coming, but the one thing we can bank on is that when it arrives many will be caught totally off guard.

The Magnitude Of One Billion Dollars Put In Perspective

When we compare apples to oranges we are comparing two things that are very different. The same thing can be said about a million dollars and the much larger sum of one billion. While both numbers represent a sum of money the size is drastically different. So different that it is difficult to internalize. As our national debt rapidly approaches 23 trillion dollars nothing is as sobering as looking at the National Debt Clock. As I will show below every 1 billion dollars spent by our government represents an outlay of roughly $3 for every person in America. This means each 100 billion spent by our government represents or equals $300 per person or around $1,020 per family.


At one time a billion dollars was a massive amount of money and it still is. Considering how modern media and politicians throw the "B" word around most people no longer see this as the enormous sum it represents. On several occasions, I have heard a billion dollars accidentally confused with its much smaller sister the million marker. This drives me crazy and is an indication of just how difficult it is to get your head around these large sums of money. When someone misspeaks and says " the cleanup effort for super-storm Sandy may run as much as 60 million dollars."  With a billion dollars being a thousand times larger this confusion is undefendable.

Believe it or not, the little pile next to the man on the top left is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag to walk around with it. Start talking about a $1 BILLION dollars as shown on the top right, now we're really getting somewhere...

Internalizing the magnitude of the difference is no easy task!

A million is a large number. To put it in perspective think in terms of someone working every year from the age of 20 until they are 60 making $25,000 a year. Their total income over their life would be one million dollars. The magnitude of the difference between billion and million is important. Another way this difference can be illustrated is with the example below that uses time as a scale or measuring stick:

• A million seconds is 12 days
• A billion seconds is 31 years
• A trillion seconds is 31,688 years

Now back to our topic and "debt math primer."  Making the ugly math simple so we can understand how it interrelates with our debt is no easy task, but let's have a go at it. In an effort to keep this simple I have chosen to focus on America. A similar formula can be created for almost any country. To make things easy lets us do a bit of rounding off and work with easier to manage numbers. Not lying about the numbers to arrive at a clear picture of reality is important.

We will start by placing the population of the United States at 333 million people, (this number is reasonably close) and includes every man, woman, and child. What makes this important is that it includes infants, children, teenagers, the nonworking both self-sufficient and those on government assistance, the retired, and the elderly in nursing homes. How marvelously simple and convenient that this number goes into 1 Billion dollars roughly 3 times.

This means that every 1 billion dollars spent by our government represents an outlay of roughly $3 for every person in America!

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Taking the number of people and placing them into other groups is more challenging. Those groups can include; households or families--- for ease we will call the average household  3.4 people. When we look at "workers" we are looking at according to government figures in 2008, 120 million people were employed out of an estimated 330 million citizens. However, unemployment increased after that date. Last but not least how many taxpayers exist in America? This is very complicated,  many taxpayers get back more in a refund than they pay in and there is a huge difference in the amount people pay, also do we consider a joint return as two payers? The fact is, nearly half of households do not pay taxes. Even worse, a great number of American households are subsidized by the government meaning the debt burden is really carried by a much smaller number of people. This we something we must remember!

Still, returning to simplicity: if we view all Americans as equal, this means, $100 billion represents or equals $300 per person and $1,020 per family.
 
Off to the right is another visual representation comparing different amounts of money, by clicking on it you can see in larger glory the point it is making. Unfortunately, we are not talking about only $100 billion dollars. The American government has been running massive budget deficits for years. Recently we saw several years where the deficits far exceeded one trillion dollars. One trillion dollars is ten times the $100 billion multiplied out above. That would represent a staggering $3,000 per person and $10,200 per family being spent each year, year after year, it adds up very fast! Again we must remember nearly half of American households do not pay taxes, and if they don't it means someone else must pay their share for them.

Sadly, this massive deficit is what is propelling the economy forward, and it is not sustainable. Please note; Massively compounding the problem is the realization that most people such as infants, children, the disabled or unemployed could not pay their share if their life depended on it. This transfers their burden to the remainder of society. The bottom-line is that it is far easier to spend or waste money than to pay it back and a billion dollars is a lot of money to repay. When you start talking about debt in multiples of thousands, tens of thousands, and even more the task becomes impossible.

Footnote; To view the national Debt Clock click this link, the National Debt Clock.

Inflation Or Deflation, Which Defines The Road Ahead?

The central banks claim the lack of inflation is the key force driving their QE policy and permitting it to continue. This is central to their ability to stimulate. The moment inflation begins to take root much of their flexibility will be lost. Today those who see inflation in our future are back on their heels and off-balance. Many people see falling commodity or stock market problems as proof deflation is at our doorstep, however, it could be argued that QE has produced a state of oversupply.  These people see the low commodity prices as proof prices won't soar as a result of the creation of massive amounts of newly printed money. A word of caution, we should not be deceived or led to believe that lower oil and commodity prices will in themselves bring about deflation. Often falling prices in both commodities and goods reflect a lack of demand or temporary supply imbalance that will correct itself. When that happens prices tend to rapidly adjust to reflect the "new reality of the day."

Panic Buying Equals Increased Demand!

A keyword in the prior sentence is "rapidly",  I recall a piece I wrote years ago titled, "Surprising Facts About Inflation" that detailed the inflation that hit Germany during the 1920s, close examination shows the worst of the inflation hit took root over a very short period.  If a similar scenario were to unfold today it would be prudent to factor in the idea it would happen much faster now that we live in an age of instant communication.

In the past, I have put forth the idea that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy collapses. This theory also known as stagflation is partially based on or dependent, on which way the dominoes fall. By this, I mean which debt goes bad first or is allowed to go bad. This theory also extends into how quickly debt spoils. In a comment, a reader several months ago wrote,  It is fairly obvious that not all IOUs are deemed as trustworthy, and as trust drains from this over-indebted system, shakiest issuers' debt will lose value fastest. Junk debt is thus a Hindenburg in search of a spark all its own. Wait until corporations discover how difficult it may be to roll over all this share-buyback debt of the last few years.

A key factor in the inflation-deflation debate is that not all debt is created equal. While a parent often absolves a loan to their child the bank seldom forgives a loan on an automobile. Sometimes like in the reality game show Survivor it comes down to who is left standing. I contend winning does not always come down to who is the best, strongest, or smartest, but that luck and many other factors also come into play in how things unfold. For example, imagine two widget factories on the hill outside of town and both with the same pricing and quality product but financially weak, if a storm knocks out production at one factory resulting in its closing the other would benefit from inheriting its customers and maybe even able to raise prices.

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At some point, this again comes down to the idea of old fashion supply and demand. Pricing tends to revolve around the supply of money just as much as it does to the supply of the commodity it is being used to purchase. This is why we should question the formulas used to compute inflation. The 2% inflation target central banks have deemed optimum or to be the point at which inflation will produce the most favorable and best possible economic result is not grounded in reality. It is also not related to the prosperity of Main Street. Instead, it is all a convenient cover allowing for the transfer of massive power to the world’s central bankers during the last two decades.

When it comes to assessing real-world inflation that is having a direct impact on consumers, the Fed is conspicuously absent from the conversation. The purpose of the consumer price index (CPI) is to reflect just how much inflation is eating into both our incomes and our savings but the numbers are political and do not reflect true inflation. This so-called 2% target only survives because it serves the interest of the Wall Street elite, the world’s politicians, and fiscal authorities alike. It has allowed those in power to run up endless public debt because the central bankers buy it under QE and drive the cost of carrying debt to virtually nothing. As a bonus, the top 1% of the financial elite cannot get enough of the 2% inflation hoax because it means free carry trade money will remain available.

Time and time again we have heard central bankers ticked off a litany of reasons why prolonged weak inflation, or sustained falls in prices known as deflation, worries them. This is done to justify the massive stimulus they have put forth. They note how falling prices may cause consumers to put off purchases if they expect that trend to continue. As further justification central bankers indicate that official consumer price measures may even overstate the extent of inflation. It is clear central bankers want to persuade households and financial markets that, whatever it's current reading, the inflation rate will be around their target and that inflation expectations are under control. Mario Draghi, President of the European Central Bank has even warned of a possible “de-anchoring” of expectations if the inflation rate remains low for a long time, and particularly if oil prices fall further. “These risks have gone up and we want to be vigilant,” he said.

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Venture too far down a path that does not reflect honest price discovery or real value is dangerous. When the gap gets too wide an adjustment always takes place. Today people have developed a "false" belief in financial security and the idea of "controlled" inflation. For years inflation has been used as both a political and economic tool. When people look at how much more they are earning now than in the past they acquire the perception that if they go into debt it will be easier to pay it off with inflated income. For decades people have been given pay raises to keep up with inflation meaning the vast majority of pay raises have nothing to do with either a person's work or performance. While an increase in salary tends to make a worker feel better and that they are worth more many raises are simply given to reflect an escalating cost of living.

My favorite definition or rule about inflation, its effect on the economy, and how it impacts savings goes like this, "Inflation is a thief that robs those who are improperly invested, and gives the money to those properly invested."  This would, of course, be referring to those who had the foresight to position their investments for its emergence. The same can be said about deflation, it mimics in reverse the process, also acting as a way to transfer wealth between parties. The problem is to timing and identifying the approach of these two strong economic forces. I have found the mindset of investors and of the "money people" often shifts into overdrive when opportunities for speculation arise. The distortion caused by easy money from Federal Reserve policy coupled with political and social compassion for affordable housing, medical care, has obvious implications as debt and promises continue to rise.

Most economists agree the Central Banks are not in a position to tighten the money supply at this time because such a move would have a devastating effect on markets, this would filter down into pension funds and retirement schemes. Remember, so many of the things we invest in are merely promises and such, hard assets are rare. A word of caution, while hyperinflation does not occur that often when it hits the speed at which it can occur surprises and it is clearly a game-changer. I continue to contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large percentage of wealth into intangible products or goods. This includes currencies, equities, and all forms of paper promises. If faith drops in these intangible "promises" which have become the foundation of our financial system money would suddenly flow into tangible goods seeking a safe haven. This would cause inflation to soar.